The first acquisition sees Henderson acquire Perennial Fixed Interest Partners and Perennial Growth Management from IOOF and each company’s employee shareholders, while the second sees the firm increase its stake in 90 West Asset Management from 41% to 100%.
Combined, the three acquired companies have £5.7bn in assets under management and, according to Rob Adams, executive chairman of Henderson’s Pan Asia business, the deals provide a “better platform for better growth” within Australia.
“With these acquisitions we are bringing forward our original strategic plan by four to five years most notably in terms of distribution reach and having a full capability set across all areas of the market,” Adams said on a conference call following the announcement of the deal.
Transformational
Andrew Formica, Henderson CEO, said the deal, while small at a group level is transformational for the firm’s Australian business and will push it into the top 30 of Australian asset managers.
The deals will more than treble Henderson’s AUM in Australia from £2.5bn to £8.1bn when the deals complete and will see the percentage of group AUM sourced from Pan Asia jump from 5% to 11%.
“These transactions fit exactly in to Henderson’s strategic aim of growth and globalisation outlined last year. Five quarters into our new five year plan we are ahead of target,” he added.
On completion of these transactions, all of which were funded from existing cash resources, and the sale of its 40% interest in TH Real Estate which completed on 1 June, the firm said, its capital position will improve by around £40m.
Henderson was also careful to add that all the key staff of the three businesses have signed long term contracts.
“In all three businesses, the employee-shareholders will receive a significant majority of their consideration through deferred earn-out structures to be paid four years post completion, with the quantum dependent on future business performance,” it said.
As part of the Perennial transactions, IOOF will receive an upfront consideration and a deferred component dependent on future business performance, payable after two and four years, the firm added.
According to Numis, the disclosure of its improved capital position implies an acquisition cost of around £50m for the three businesses.
“Management also suggested on the call that it had paid in the range of 8-12x EBIT (implicit 11-17x earnings @ 30% tax rate). It also disclosed on the call that the average management fee margin would be c.20bps (implicit c.£11m revenue), at a c.35% operating margin (implicit c.£4m EBIT) and at a 30% Australian tax rate (implicit c.£3m earnings). This implies the deal will be c.2% accretive to group revenue, EBIT and earnings on a pro-forma basis,” Numis wrote in a note post the announcement.
Such a multiple, the broker said, is around fair value for growth asset management businesses generically.
But, it added: “At a group level, we continue to believe that Henderson is overvalued, trading on c.17x FY15 P/E or c.23x ex-performance fees for c.10% p.a. implicit medium term targeted profits growth.”
